Having an early retirement is a goal that many people share, and something which may be achieved by analysing your earnings, savings, and investments with a dedicated financial planner.
So, what are the financial requirements and lifestyle considerations needed to retire at 55? If you’re planning on an early retirement, you should begin by mapping out your goal retirement lifestyle. This should include what you want to do in your retirement and when you want it to begin. From here, you can work out how much you need to fund it and then start organising your finances to achieve it.
This may be achieved by creating a lifestyle cashflow modelling plan which will map key events and can illustrate different scenarios in terms of investment returns and options. This should be revisited every year to ensure that your plan remains relevant and still on track.
What is an early retirement?
A good place to start would be to define what an early retirement is. At the time of writing, UK retirees can draw on the State Pension from age 66. This will be increasing to 67 in April 2028.
Most people consider an early retirement to be when you reach 55 and can start drawing on your personal or workplace pension savings. However, it’s important to note that this is going up to 57 in April 2028 too.
You may be forced to take an early retirement through ill health or needing to care for a parent or spouse. You may be eligible for higher payments if you need to take your pension early because of a health condition, so it’s important to check with your provider and financial planner.
Can I retire early?
The next step is to think about your ideal retirement lifestyle and work out how much it will cost to maintain this. If you are planning a lot of international travel, purchasing of properties, or investing in luxury items you will need to factor this into your budget.
Taking early retirement doesn’t always mean stopping work entirely. Many people move into more flexible, part time work or volunteer with a local charity or community group. Continuing to work in some capacity can help you to ease into retirement by avoiding the full-on stresses of working life whilst still enjoying its financial benefits.
Calculate your total pension pots
Once you have worked out what kind of lifestyle you’d like to live in early retirement, the next step is to calculate the total amount in your pension pots. This can include private or workplace pensions, and any final salary pensions you may have. It’s important to remember that if you are taking an early retirement, you will not have access to the State Pension to include in this income yet.
If you have lost track of any of your pensions, you can trace them by either contacting the pension provider or reaching out to your former employer if it was a workplace pension. You may struggle to contact a previous employer if the company is no longer trading, or trading under a new name. If this is the case, you may wish to use the government’s free Pension Tracing Service.
A professional financial planner can work with you to locate your pension pots and see if it makes sense to consolidate them.
Minimise your taxes
Minimising your taxes can be key to an early retirement. It is essential that you review the sequence and order in which you draw from your various investments, assets, and sources of income to mitigate the impact of taxation.
These taxes may deplete your income, so it is important to work with an experienced financial planner who will utilise the cashflow modelling plan to help ensure your capital lasts as long as possible – leaving more for your beneficiaries (or for an extra holiday!)
Review your State Pension
Once you have reviewed your pension pots, it’s prudent to take a look at your State Pension. You can check your State Pension forecast using the government website which will advise you on how much you could get, when you can access it and if there are any ways to increase the amount.
The State Pension age is regularly reviewed by the government, so it’s important to stay up to date especially if you are approaching your goal retirement age.
Sources of income
Be sure to take into consideration any other sources of income that can contribute towards funding your early retirement. This can be savings and investment portfolios you’ve built up over the years, or any properties you own. Your financial planner can work with you to review your assets and advise you on your personal circumstances.
Many people consider taking on part time work or even start their own small business in retirement which allows them to have a flow of income whilst maintaining a good work-life balance. Part time or voluntary work can also help to keep your brain stimulated in early retirement which may benefit your long-term mental health.
Paying off any debts or loans
When you are estimating the cost on an early retirement, it’s important to factor in any debts or outstanding loans that you may have into your budget. Working with your financial planner, you could potentially see if consolidating any loans or debts can help to you clear them more effectively.
Your planner can also work with you to set a realistic goal of when you hope to pay any debts off. Having a plan in place can help you to achieve this for your early retirement.
Factor in your dependants
It’s important to consider any financial dependants you may have into your early retirement planning. You may have children or grandchildren that will still be financially dependent on you at the time of your early retirement. There is also the possibility of caring for older parents, spouses or any other relatives. You should factor these potential responsibilities into your retirement plan as childcare and elderly care can be expensive.
Living arrangements
You may also want to consider your living arrangements when you are planning to retire early. Do you want to stay in the same house you are currently living in, or could you downsize to release some cash from your assets? Is it possible to release equity with a lifetime mortgage or similar mortgage product? Or do you see yourself living out your early retirement somewhere new? Perhaps you are thinking of leaving the city for the countryside, the beach or even emigrating abroad.
Working out what you want from your living arrangements is key to early retirement planning as it can have a big impact on your budget. It is wise to speak to a professional mortgage adviser alongside your financial planner as they can work together to assess your personal circumstances and help you to realise your goals.
Seek professional advice
A dedicated financial planner will review all of the above steps with you to help you calculate the cost of your early retirement. They can gain a good understanding of your wishes and goals to help you to estimate how much you will need to live out your ideal early retirement.
If you would like to speak to our team of financial planners about retiring at 55, please get in touch.
